The reduction by the UK Government’s austerity measures is seeing more than £90 billion of spending cuts from 2010 to 2014. It has resulted in a number of business failures, not just of prime contractors, but also more specialist contractors and suppliers whose order books have dried up, or who have failed to manage their cash flow effectively.
In the last year the SFP Group has been appointed Administrator to more than 10 companies in the construction industry. Many have had similar issues. These issues are failing to plan for and accrue sufficient funds to pay the tax bill at the end of the financial year, plus the pressures of remaining competitive and ahead of the competition in a fiercely competitive market.
This comes against a background of recent data from the Office for National Statistics that shows at the end of September the output of the construction industry was still 13 percent below its peak in the first quarter of 2008. Construction growth is still coming from a low base.
But there are signs that output levels are starting to rebound from a deep and protracted double-dip recession that only really ended this summer. If struggling companies had been able to maintain their cash flow through difficult times they might have been able to survive into the period of recovery that we are just beginning to see. In the Chancellor’s 2013 Pre-Budget Review statement growth forecasts for this year have doubled from 0.6 percent to 1.4 percent.
One recent example of a company that failed to maintain cash flow during difficult times and therefore was forced to cease trading is the Saltash-based asbestos removal firm Westcountry Environmental Services Limited (WCE).
Established in 2010, the company specialised in the demolition, bulk sampling, waste disposal and environmental clean-up of asbestos from its base on the Tamer View Industrial Estate. The company was doing well with an annual approximate turnover of £1.6 million, but then it ran into cash flow problems. The pressure of trying to market and run a business as well as look after the accounts is tough for any SME company. But, cashflow is the lifeblood of any company – often the problems only become apparent at the end of the financial year – but when the cash flow dries up, a company is likely to fall into deep trouble.
SFP’s Simon Plant and Daniel Plant – both licensed members of the Insolvency Practitioners’ Association who were appointed Joint Administrators on 23rd September 2013 to WCE said: “WCE was placed into administration due to serious cash flow issues that previously led to a CVA in 2012 and subsequently caused the downfall of the firm.
“The problem for so many small to medium sized businesses is keeping tabs on everything from sales and marketing to collecting invoice payments,” said Simon. “It’s difficult when there is a lot going on in the business, but we can not over stress the importance of maintaining a positive cash flow balance.”
SFP tips on how to keep a positive cash flow are: